Home Equity Loans (HEL) enable the borrower to use the
equity in their home as collateral. These loans are handy
in helping families finance the major home repairs, college
education or medical bills. This kind of loan also makes a
lien against the borrower's house and brings about a
reduction in the actual home equity.
Home equity loans as second mortgages
A home equity loan is secured against the property value,
quite like a traditional mortgage. This loan usually is for
a shorter term than the first mortgages, though not always.
However, in the US, it is quite possible to minus the home
equity loan interest on your personal income taxes.
Home equity loans as second position liens
You will also find home equity loans as a second trust deed
or a second position lien, with the option of being held in
the first or in some cases in the third position. The
majority of the home equity loans need a fabulous credit
background as well as a reasonable loan-to-value and merged
loan-to-value ratios.
The two kinds of home loans
[1] Open end home equity loan: Open end home equity loans
are revolving credit loans, and thus can also be called
home equity line of credit (HELOC). The borrower here is
offered the option to choose when and how he would like to
borrow against the equity in the property. The lender sets
an original limit to the credit line and the criteria
applicable for this is similar to that of a closed end home
equity loan.
It is also possible for you to borrow 100% of the home
value at the maximum, and that too without any liens. These
lines of credit are available for a maximum period of 30
years, most often at a variable interest rate. The minimum
monthly payment can be quite low, with you having to fish
out only the interest that is due.
The interest rate is usually based on the Prime Rate
together with a margin.
[2] Closed end home equity loan: This kind of home equity
loan enables the borrower to receive a lump sum during the
closing and prevents the borrower from borrowing further.
The majority of the money that can be borrowed is denoted
by considering the variables, which include income, credit
history as well as the evaluated value of the collateral a
long with other variables.
It is though common to borrow a maximum of 100% of the
assessed value of the home, without any liens; however,
there are lenders who will go over 100% during doing the
over-equity loans. The state law governs, as Texas allows
borrowers to borrow a maximum of 80% of the equity.
The rates in the closed end home equity loans are generally
fixed and can be liquidated for up to 15 years. There are
certain home equity loans that provide decreased
liquidation and at the end of the term, a huge payment is
due. These lump sum payments can be avoided if you pay more
than the minimum payment or consider refinancing the loan.
Fees of the home equity loans
Home equity fees that may be applicable include originator
fees, appraisal fees, stamp duties, title fees, closing
fees, early pay-off, arrangement fees and other costs.
Conveyor and surveyor or valuation fees can also be
applicable to the loans.
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Debbie Groves is the owner of The Best Home Equity
Loans.Which is a premier resource for home equity loans
information. For more information, go to:
http://www.thebesthomeequityloans.com
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